Eight years ago, tongues were wagging after the International Consortium of Investigative Journalists (ICIJ) and its media partners made public millions of files exposing the financial secrets of the über wealthy. The files, which came to be known as the Panama Papers, included assets that were allegedly stashed in offshore companies to avoid taxation. This week, those accused of facilitating the schemes are going to trial.
Panama Papers
The Panama Papers were leaked from Mossack Fonseca, a Panama-based law firm which, according to its website at the time, offered “comprehensive legal and trust services.” (The law firm closed in 2018, and its website is currently parked.)
The website went on to say that the firm offers “research, advice and services for the following jurisdictions: Belize, The Netherlands, Costa Rica, United Kingdom, Malta, Hong Kong, Cyprus, British Virgin Islands, Bahamas, Panama, British Anguilla, Seychelles, Samoa, Nevada, and Wyoming (USA).” Some of those jurisdictions have been labeled tax havens—including Panama.
The leak involved 11.5 million confidential documents, including financial and legal records. The documents take up 2.6 terabytes in computer storage (for context, one terabyte of data could be stored on about 1400 CD-ROMs or 220 DVDs). The 2010 Wikileaks data, for comparison, only included 1.7 gigabytes.
The files date back to 1977 when Mossack Fonseca was formed. In 2015, an anonymous source contacted Süddeutsche Zeitung, a well-known German newspaper, with an offer to turn over e-mails, photos, and other documents taken from an internal Mossack Fonseca database. The reason, the source said, was simply, “I want to make these crimes public.”
Süddeutsche Zeitung, in turn, shared the records with the ICIJ. The ICIJ and hundreds of other journalists from various news outlets researched the documents. Their investigations exposed the offshore financial secrets of world leaders and public figures.
You can search the database, which includes more than 810,000 offshore companies, foundations, and trusts from the Pandora Papers, Paradise Papers, Bahamas Leaks, Panama Papers, and Offshore Leaks investigations here.
You may see names you recognize, but as the database website notes, “The inclusion of a person or entity in the ICIJ Offshore Leaks Database is not intended to suggest or imply that they have engaged in illegal or improper conduct.”
Offshore Assets
It’s important to remember that owning an offshore company or creating an offshore trust isn’t illegal. It’s perfectly okay in most countries, including in the United States. What is unlawful, however, is using offshore trusts to hide assets from known creditors or to evade taxation—failure to disclose offshore assets and report offshore income can land you in big trouble.
The IRS noted that “[u]nscrupulous promoters continue to lure U.S. persons into placing their assets in offshore accounts and structures, saying they are out of reach of the IRS,” while warning taxpayers that those who “promise tax savings that are “too good to be true”… will likely cause legal harm to taxpayers who use them.” Those schemes were (again) included in this year’s IRS Dirty Dozen list. (The “Dirty Dozen” is an annual list of common scams taxpayers may encounter.)
When advisors like lawyers (like me), accountants, and financial advisors work to establish offshore accounts, there’s a lot of due diligence that has to happen to ensure that money isn’t being transferred for illegal purposes such as tax evasion, money laundering or to avoid existing creditors (including soon to be ex-spouses or victorious plaintiffs). But even moving money legitimately out of a jurisdiction doesn’t erase the compliance obligations. In the U.S., for example, you must still report the existence of the accounts on tax returns (and in other circumstances, including for child support and other court proceedings).
Failure to do the right thing can land not only the account owners—but also the lawyers, accountants, and financial advisors who facilitated opening the accounts—in hot water.
Allegations & Trial
That’s what the authorities allege happened here. Mossack Fonseca immediately denied any wrongdoing, saying that the release of the documents misrepresented the work that was done. In 2016, they posted a statement on their website, saying, in part: Recent media reports have portrayed an inaccurate view of the services that we provide and, despite our efforts to correct the record, misrepresented the nature of our work and its role in global financial markets.
The firm also indicated that it had no control over how its clients might use offshore entities created for them.
Despite those denials, the Panama Papers eventually led to the firm shutting down. It also resulted in a money laundering trial in a Panamanian court.
Twenty-seven people are on trial, including Jürgen Mossack and Ramón Fonseca Mora, who founded the now-defunct law firm. If they are found guilty, they face up to 12 years in prison. Mossack and Fonseca have repeatedly denied being involved in any illegal activities.
According to the AP, Mossack was present in the courtroom at the opening of the trial, while lawyers for Fonseca said he was in a hospital in Panama.
The trial is expected to run until April 26.
Read the full article here
